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Assignment 3: Problem 1 A firm plans to begin production of a new small appliance. Management should decide whether to make the small engine of this product in-plant, or buy it from an outside source. If management decide to make the engine, then there are 2 alternatives (1) To built it with a simple manufacturing system, or (2) To built it with an advanced manufacturing system. The fixed cost of alternative (1) is 10,000$ / year and its variable cost is 8$ per unit. The fixed cost of alternative (2) is 30,000$ / year and its variable cost is 5$ per unit. Purchase price of the engine is 10$ per unit.
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BEP for 3 Alternatives and Summary
Prepare a table similar to the following table, to summarize your recommendations Demand Recommendation Q <= ? ? ? < Q < = ? ? ? < Q ?
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Purchasing vs. Manufacturing I
1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 Q=10Q 2Q=10000 10,000+8Q 10Q Q=5000
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Manufacturing I vs. Manufacturing II
1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 Q= Q 3Q=20000 30,000+5Q 10,000+8Q Q=6667
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Executive Summary We summarize our recommendations as
Demand Recommendation Q <= Buy 5000 < Q < = Manufacture Alternative I 6667 < Q Manufacture Alternative II
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Assignment 3: Problem 2 A manager has the option of purchasing 1, 2, or 3 machine Capacity of each machine is 300 units. Fixed costs are as follows Number of Machines Fixed cost Total Capacity Variable cost is 10$ per unit, sales price of product is 40$ per unit Tell management what to do
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BEP for 3 Alternatives and Summary
Prepare an executive summary Q<= ? ? ?<Q<=? ? Q>? ?
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BEP: One Machine The beak-even point for 1 machine is 320
But one machine can not produce more than 300 Demand <= 300 No Production Otherwise Consider two machines 100 200 300 400 500 600 700 800 900 1000 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 40Q Q Q = 40Q 9600= 30Q 320
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BEP: Two Machines The beak-even point for 2 machines is 500
Demand <= 500 No Production Otherwise Two machines and consider three machines 100 200 300 400 500 600 700 800 900 1000 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 40Q Q Q = 40Q 15000= 30Q 500
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BEP: Three Machines The beak-even point for 3 machines is 667
500<=Demand <= 667 Produce up to 600 using 2 machines Otherwise Three machines 100 200 300 400 500 600 700 800 900 1000 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 40Q Q Q = 40Q 20000= 30Q 667
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Executive Summary Q<= 500 DoNothing
500<Q<=667 Buy two machines and produce 500< Q<= 600 Q>667 Buy three machines and produce 667<Q<=900 Now it is to Marketing Department to provide executive summary regarding the demand
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Strategic Positioning of CSUN
If we take the quality of the education you get at CSUN and divide it by its cost for you and your parents, then CSUN is ranked among top Universities in the Nation. U C P Quality Cost
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Student Contribution However, quality of education at CSUN largely depends on the students. Are you getting the highest quality education? Perhaps we can test this hypothesis. Please go back to the previous slides. We have made a mistake. If you can find out the mistake, then perhaps You are saving lots and lots of money for your parents, at the same time, you are among the best undergraduate students in the Nation.
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Maximum Profit With Two Machine
100 200 300 400 500 600 700 800 900 1000 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 TC = (600) TC = 21000 TR = 40(600) = 24000 Profit = = 3000 40Q } Q You do not switch to 3 machines unless you make 3000 profit
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Wrong Recommendation Q<= 500 DoNothing
500<Q<=667 Buy two machines and produce 500<Q<= 600 Q>667 Buy three machines and produce 667<Q<=900 At Q = 667 you make 0 profit with 3 machines Q = 40Q 20000= 30Q Q = 667 Q +3000= 40Q 23000= 30Q Q = 767
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Executive Summary Q<= 500 DoNothing
500<Q<=767 Buy two machines and produce 500<Q<= 600 Q>767 Buy three machines and produce 767<Q<=900 Now it is to Marketing Department to provide executive summary regarding the demand
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